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Osteotech Becomes Second Company To Issue Human-Tissue Recall

Sep 30, 2002 | The Wall Street Journal

As a precautionary measure, Osteotech Inc. temporarily suspended processing operations within its base tissue segment after finding higher than usual amounts of unsterile human tissue being worked on at two facilities.

Unlike the scandal surrounding the nation's largest public tissue donation firm CryoLife Inc., none of Osteotech's tendons and connective tissue have been tied to human casualties or infections.

"I want to emphasize that the actions we are taking are precautionary," Osteotech President and Chief Executive Richard Bauer said Monday in a statement. "All the tissue that was shipped from our facility during this time of higher than normal sterility failures passed our sterility tests."

However, it is a big setback for the small Eatontown, N.J., company, which saw its market capitalization fall nearly $69 million by the end of the trading day.

Osteotech is withdrawing its July earnings guidance of 22 cents to 24 cents a share for 2002 and revenue guidance of $91.5 million to $93.5 million.

The provider of human bone and bone-connective tissue said it expects the disruption to hurt its third-quarter revenue and earnings and possibly fourth- quarter results. The company hasn't determined the extent of the impact on either quarter.

But investors knocked about half the value off the shares Monday, taking them down 46%, or $4.31, to $5.16 on volume of 2.4 million shares, compared to average daily volume of 182,123.

Sterility failures occurred in the company's new processing facility and its alternate site processing facility.

Osteotech expects to resume processing operations within five to nine days.

During the period at hand, Osteotech processed 693 donors. Fifteen of these donors, which were tested and found sterile, were released to two clients prior to a quarantine.

Of the 15 donors that had been shipped, one of the clients said that tissue from nine of these donors was provided to hospital customers. Together with that client, Osteotech has recalled this tissue.

All of that tissue has been retrieved, spokesman Michael Jeffries said.

"We expect to be able to rework the tissue and release it at a later date," Mr. Jeffries said.

Mr. Jeffries declined to comment whether Osteotech thinks outside organizations like the U.S. Food and Drug Administration may start to probe the company, saying that management would discuss the issue in Tuesday's scheduled 10 a.m. EDT conference call.

An FDA spokeswoman said the agency is aware of the situation.

Osteotech's news comes after the FDA on Aug. 13 issued a mandatory recall of tendons and connective tissue processed by CryoLife on or after Oct. 3, 2001.

The CryoLife tissue has been linked to the death of a Minnesota man and has spawned an increasing number of lawsuits from patients who claim to have been infected. This month, the FDA agreed to allow the Georgia company to resume distribution of some of its products, but only in cases of medical emergency.

CryoLife wasn't on the American Association of Tissue Banks' Accredited Bank List prior to the recall. Osteotech is on the accredited list. An American Association of Tissue Banks' spokesman wasn't immediately available for comment.

More than 650,000 human-tissue implants are performed each year to repair afflictions such as damaged knees and diseased hearts.

While the FDA closely monitors the transplantation of organs such as kidneys and livers, it has largely allowed the organ and tissue procurement industry to regulate itself.

Four years ago, the FDA proposed a three-part plan that would require tissue banks to register along with setting procedures for handling tissues and screening potential donors. So far, only the registration of tissue banks is a rule.

But last November, when the 23-year-old died from a bacterial infection linked to the CryoLife tissue during routine knee surgery, the national Centers for Disease Control and Prevention began an industrywide investigation.

CDC officials weren't immediately available for comment.

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